TOM YUM KUNG CRISIS

HOW DID THE TOM YUM

KUNG CRISIS START AND
HOW DID THAILAND
MANAGE WITH IT?

Process
Journal
A detailed and informative journal
that documents all my learning
processes including goal, summary,
source and reflection.
 How did the Tom Yum Kung Crisis start and
how did Thailand manage with it?
(10 May 2017)
GOAL : For today, I will research about the basic information about the Tom Yum Kung crisis in
Thailand and the causes of the crisis to basically know the main idea.

Summary
Started in July, 1997 or 2540 BE
Also called as Asian Financial Crisis because it affected many Asian markets such as South
Korea, Philippines, Japan etc.
Related
Real Estate Market began to crash in 1996
Stock Index fell
16 financial institution were shut down
The Baht is floating ( the baht was determined solely by the exchange of the market forces
of demand and instead of by the Thai government)
Actually started with the financial collapse of the Thai baht because Thai government decided to
float the baht, cutting its peg from USD.
What is to float the currency? What is peg?
- To let Thai baht change relatively with other currencies and vary on demand and supply.
Because before that, Thai baht had a fixed value in the foreign exchange.
- According to Investopedia, currency peg is a country or governments exchange rate policy of
attaching the central banks rate of exchange to another countrys currency.

Sources :
https://www.scribd.com/doc/37407231/The-Asian-Financial-Crisis
http://longinvestment.exteen.com/20120807/entry
https://theculturetrip.com/asia/thailand/articles/understanding-thailand-better-the-tum-yum-kung-
crisis/

Reflection
For today, I now understand the basic idea of the Tom Yum Kung crisis. I try to compare it
to the Great Depression in America that we learned before in order to understand more. And I just
realise that Thailand still has a lot of debt to pay back because of this crisis. Today, I have reached
my goal which is to know the basic ideas and the causes of the crisis. But next class, I will be
researching more detailed information based on what I know today.
 How did the Tom Yum Kung Crisis start and
how did Thailand manage with it?
(11 May 2017)
GOAL : For today, I will watch some videos about the Tom Yum Kung crisis both in Thai and
English in order to have a better understanding about what happened at the beginning of the crisis.

Sources

https://www.youtube.com/watch?v=ylF3U19I16A
Tom Yum Kung Crisis in 1997
https://www.youtube.com/watch?v=DbHojgTbv6k
Financial crisis in Thailand caused by speculative attack I Macroeconomics I Khan Academy
https://www.youtube.com/watch?v=lA3sjWwu5-s

Summary
- According to the videos, since 1993, Thailand started the Financial Freedom which means
money can be moved freely from country to country so people can borrow money from other
countries. << Bangkok International Banking Facility (BIBF) >>
- Moreover, other countries interest rate is much lower than in Thailand and there was a fixed
exchange rate.
- As a result, a lot of people borrow (dollars) and invested money on real estate ex. construction/
building. Some people also borrowed to give loans to other people or invested in the stock
market.
- The people set the price high to make profit, even higher than it should be. >> economic
bubble (the price of an asset goes up but not justified by the supply and demand factors for the
asset but because of speculation) >> money devaluation (money loses it value relative to
other currencies)
- Then George Soros, an American Investor, saw that its the short-term loan meaning that Thai
people were going to return the money($) that they borrowed soon. Also, he predicted that Thai
baht will be depreciated (decrease in value) because our exports rate is very low & deficit
spending
- He tried to attack Thai baht.
- Moreover, as he had a lot of dollars, he sold dollars in the rate of 1 dollar = 50 baht. (used to be
25 baht)
- So the Central bank of Thailand decided to use the countrys money (foreign reserve) to buy
dollar (1=50) and give it to people at cheaper rate to pay back their loans in order to maintain
the value of Thai baht.
- Finally, Thailand was forced to float Thai baht (let it flow to its actual value) due to lack of foreign
currency to support its currency peg to the U.S. dollar.
- Banks and financial institutions started to fail so the government offered the 100% deposit
insurance and willing to manage those debts. (DEBT : 1.14 million million baht.)
- Thailand had no credit anymore so other countries didnt want to lend money to Thailand.
Thailand needed to borrow money from International Monetary Fund (IMF)
- IMF = organisation that provide financial assistance to its member

Reflection
The reason why I choose to watch videos instead of reading this time is because it gives
better explanation and clearer picture about the topic. After watching these videos, I can
understand almost of the information mentioned in the videos. Now, I kind of understand what was
happening at that time but I am still a little bit confused about why we decided to float the currency.
But I will find out the answer by researching more in the next class and try to ask my parents as
they experienced the crisis in 1997.
 How did the Tom Yum Kung Crisis start and
how did Thailand manage with it?
(15 May 2017)
GOAL : For today, I will research about the overall effects on Thailand and peoples response.
After that, I will try to find the answer for my question last time about what George Soros did
( Attacking Thai Baht)

Overall Effects

To Country
- Thai baht is highly depreciated > Lack of confidence in Thai economy
- Change from fixed exchange rate to floating exchange rate
- Increase in external debt
- Financial Institution Crisis - collapse of banks,trust,finance
- Stock market crash
- Economic recession
- Political Instabilities
- Affect other Asian countries (ex. Malaysia, Philippines, South Korea, Indonesia)becoming an
Asian Financial Crisis
- Foreigners took over many banks and large companies
To people
- Many constructions stopped such as the Sathorn UniqueTower
(abandoned building)
- Many businesses went bankrupt
- Unemployment : no jobs
- Increased rate of suicide. Metal health hotlines were opened.
- Sufficiency economy
- provide spiritual support to people going through hard times
- encourage people to return to their basic lives : having enough to
live on
- avoid actions that are beyond capability, such as overspending,
over-investment or over-borrowing,
- People turned to Buddhism
- Luang Ta Maha Boowa Yannasampanno created a big
fundraiser ,collected some two million baht &1.7 tons of gold and
give to bank of Thailand

Sources
Thai Financial Crisis
http://willmann.com/~gerald/econ429/thai.pdf
Benefits to the nation bestowed by His Majesty's Sufficiency Economy Philosophy
http://www.bangkokpost.com/print/1111081/
Attacking Thai Baht

How did George Soros/ Hedge Fund attack Thai Baht?

- Sell baht = buy dollar
- He had been collecting baht since 1996, then when he had
enough, he spread the rumour that Thai baht will be devalued
and baht will be attacked by him. (attack by selling baht and
buying dollar) selling a lot = supply + = price -
- So when people heard that, people followed what he did which is
selling baht.
- Currency market is like normal goods >> buy low & sell high.
- If ppl think that Thai baht will decrease in value, they will sell
baht and buy dollars
- And if Thai baht really decrease in value, they will sell dollar and get more Thai baht to earn
profit.
- When ppl try to sell baht, its value dropped down dramatically.
- Then, Bank of Thailand needed to do something to maintain the value of baht.
- First, BOT used their foreign exchange reserves (around 40 million dollars) to buy Thai baht
back in the foreign market. >> demand+ = price+
- Increase the interest rate in banks so less ppl will borrow baht to make profit. (against
speculators)
- When a lot of Thai baht was taken out from the market (bought back by us) + high interest rate =
baht increase in value.
- Soros didnt only get money from speculating currency, he also get money from American ppl
who suffered from borrowing and selling thai baht because of the very high interest rate in
borrowing baht. So when they need to return thai baht, they need to borrow from his Hedge
fund.
- His hedge fund is called Quantum Fund, who was sophisticated in investing in money market.
- *** His strategy is short selling, borrow and sell first and then buy it when the price drops.
- But the money Soros has is still more than Thailand has, even we spent all of our foreign
reserve, its still not enough.
- Eventually, Thailand ran out of money and can no more maintain the value of baht, we need to
float the baht, letting it flow to its actual value ( down to around 58).
- People have no money to pay back their loan and also has more debt (double = 25>>50)
- Crisis started

Source

http://www.bloggang.com/viewblog.php?id=kobkamong&date=02-12-2013&group=1&gblog=5

Reflection
For today, I only research about the overall effects of the crisis, not the detailed or statistics
one. I also learn about how was the peoples way of life at that time. I now realise the short-term
and long-term effects of the crisis. I also notice that this crisis had given a very useful lesson to all
Thai people and be as an good experience at the same time. However, I didnt finish the second
part in the class about the currency attack so I need to do it at home for extra work.
My question last time is already answered. Finally, I was able to find out the answer and
understand about the method of attacking Thai baht. First, I asked my father and understood about
50% and then do more research. Because in academic articles, the vocabularies used are too
difficult to understand so I used some websites such as Pantip and other Thai websites which give
an easier explanation. Attacking a currency is a little bit complicated and confused at first but I
eventually understand them clearly by discussing with my friends that do the same topic in other
class.
 How did the Tom Yum Kung Crisis start and
how did Thailand manage with it?
(18 May 2017)
GOAL : I will research about the solution to the crisis and how Thailand managed with it. After that
I will go through more details about the role of IMF or what IMF did to us.

What did Thailand do to reform the economy?

- Borrow $17.2 billion from IMF or International Monetary Fund (Fiscal Policy)
- Also borrow from Japan (Miyazawa) (Fiscal Policy)
- Increase export and decrease import.
- Attract more foreign investors such as giving Thai nationality for foreign investors.
- Increase production, especially for agriculture, and also SMEs (small and medium-sized
enterprises)
- Infrastructure spending (Fiscal Policy)
- Promote tourism
- ran many campaigns such as Years of Amazing Thailand, Visit Thiland, Unseen Thailand to
attract more tourists.

What did IMF do?

- In order to get a loan from IMF to fill up those foreign reserves that we lost, many conditions/
rules are needed to be followed by both government and banks which are to:
- Close 56 financial institutions and ensure peoples deposit.
- Start free trade (international trade without tariffs or restrictions)
- Change some parts of the law, allowing foreign investors to invest in Thai stock market and
the stock prices were adjusted down by half. This makes many foreign investors came and
took over businesses in Thailand, especially finance, transportation and real estate business.
- Every company who want to get the loan from other countries need to show and reveal their
data to prevent corruption and to regain credit.
- Monetary Policy : Increase interest rate to prevent devaluation and also to prevent people
from depreciating baht to do more exports.
- Fiscal Policy : increase tax
- Use float exchange rate
- Privatisation = government enterprise >> private (foreigners can intervene)
- Release 11 new laws to reform the economy

*** (SHORT-TERM) Strict Monetary and Fiscal policy = higher interest > higher capital >
price of goods/services went up > higher cost of living > people suffer
After the currency is stable >> reduce interest rate

Sources
http://factsanddetails.com/southeast-asia/Thailand/sub5_8g/entry-3309.html
http://www.imf.org/external/pubs/ft/fandd/1999/06/aghevli.htm
https://jariya4016.wordpress.com/2014/10/19/-tom-yum-kung-crisis/
http://wannaphong.blogspot.com/2012/01/imf-2540.html

Reflection
Today, I dont have a hard time understanding the information because some of the strategies used
to reform the economy are similar to those used in the Great Depression that Ive learned before.
So I almost finish all the main ideas in this topic as I have been going through the causes, effects,
and solution of the crisis. Next class, I plan to make an additional part which is a case study.
 How did the Tom Yum Kung Crisis start and
how did Thailand manage with it?
(19 May 2017)
GOAL : I will research about an example of Thai company who was massively affected by the
crisis. Then at the end, I will make a mind map containing all the main ideas that I have been
researching under this topic.

Case Study : Siriwat sandwich

- Siriwat Voravetvuthikun is one of the people who went bankrupt after the crisis. He had a huge
debt (billion baht) but he didnt give up and started selling sandwiches on the roadside.
- Before the crisis, he was the CEO of the biggest broker company in Thailand. He was the most
popular stock investors who made millions of profit per day.
- Because of the BIBF, he borrowed a lot of money to build the condominium in Khaoyai. And
because of the crisis, he had to handle around billion baht of debt.
- He has 3 children so he couldnt give up. He walked along the street selling homemade
sandwiches and his sandwiches were made day by day. As his name was on the blacklist, he
cant borrow money from others so he started at the basic.
- Now, he is able to clear all his debt and be the owner of TGIF corporation that will soon enter the
stock market.
- He created a logo of his brand with Thai baht being floated and the IMF loans.
Source
http://www.posttoday.com/analysis/interview/477270

Reflection
Today, I know how the crisis affected businesses at that time and all Thai people gained an
important lesson in their lives. I could say that I understand all of the information gathered.
However, the mind map couldnt be finished in the class so its done for extra homework. On the
weekend, I also plan to go to an exhibition about the crisis at Museum Siam to have more ideas
and pictures about the crisis.